Thinking about Getting a Merchant Account? Find Out What You Need to Know

Every business that accepts credit or debit card payments must have a valid merchant service account. These accounts are backed by banks and other financial institutions whose job it is to approve or decline a transaction.

If the payment is approved, the service provider will send a bill to the customer’s credit or debit card company. Once payment is received, the provider will send the necessary funds, less a small transaction fee, to the merchant. The entire process takes an average of two to three days.

Why should you apply for a Merchant Service Account?

Because cash is no longer king, plastic is. According to a recent survey, the average America has eight credit and debit cards, and he uses them for about sixty percent of his retail purchases. He also uses them for around ninety-five percent of his online transactions.

Why is plastic so popular online? In short, it is the fastest, safest, and most convenient way to send a payment. The other choices are money orders, checks, and payment services. Each of these options has a major drawback. Money orders and checks can take weeks to receive and to clear, while payment services can only be used if both the buyer and the seller are members.

A merchant service account, on the other hand, has no such proscriptions. Anyone with a valid credit or debit card can purchase an item online and have the item shipped to him that very day.

What to Look for?  

Though the process appears quite simple, accepting credit or debit card payments can be confusing. There are a number of basic fees that are fairly straightforward and others that take some time and a calculator to compute. This can make it difficult to select the merchant service provider that offers the lowest rate.

Probably the most common mistake most new merchants make is that they focus on the transaction rate or fee and do not consider monthly fees, start up fees, or termination fees. Let’s take a moment to discuss each of these fees and how they relate to different types of businesses.

Transaction Fees

The service provider deducts a fee from each transaction he oversees. This fee is based on a percentage of the final sale. This percentage is often influenced by the risk of the industry that the merchant competes in.

For example, a retail business that accepts credit and debit card payment in person and collects and files signed receipts is considered to be low risk. As a result, they are typically charged a low transaction fee, often only one percent of the sales price.

By comparison, an online business that does not come in physical contact with its consumers and does not collect a signed receipt is considered to be medium to high risk, depending on the specific industry that they compete in. These virtual businesses are often assessed transaction fees of six percent, or more!

There is, of course, a very good reason for this. And that reason is called a chargeback. A chargeback occurs when a credit or debit cardholder disputes a particular charge. The credit or debit card company will then contact the merchant service provider and requests a refund.

If the refund is granted, the service provider will demand recompense from the merchant for both the cost of the refund and the time they spend investigating the claim. The provider is also free to raise the merchant’s transaction and monthly frees. If the merchant has a history of chargebacks, the provider may decide to terminate the account.

As a general rule, a business that has high volume sales, like a convenience store or a gas station, should look for a service provider that offers the lowest possible transaction fees, even if it means paying a higher monthly fee. On the other hand, a store that sells more expensive items, like computers or electronics, may save money with a merchant service account that has slightly higher transaction fees and lower monthly fees.

The Contract

Because rates and fees are highly variably and are left to the discretion of the service provider, the easiest way for them to make money is to secure you in a long-term contract. For established retail businesses that compete in low risk businesses, this may not be such a bad thing. It offers security.

But for online businesses that compete in risky industries, signing a long-term deal is often a bad idea. Remember, you are only one chargeback away from much higher rates, and if you have signed a long-term deal, the provider can raise your rates into the stratosphere. It is also important to take a close look at the termination fees before you sign anything.

Although finding the perfect merchant account and provider for your business can be a complicated process, its benefits are more than worth it. The convenience of credit card processing will keep your customers—and your bottom line—happy.

Oscar Alejo is a freelance writer who writes about a range of topics including merchant accounts .

Article Source: http://www.marketingarticlelibrary.com

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